Microeconomics Flashcards
What is a hypothesis?
a testable proposition that makes a type of prediction about behaviour in response to a condition.
What is a hypothesis in economic theory?
A testable prediction about how people will behave or respond to a change in economic circumstances.
eg. If the price of ipads increased, we might hypothesize that fewer ipads would be sold.
What is empirical analysis?
The examination of data to see if the hypothesis matches up with the facts. (examine the data).
Why is determining if a hypothesis is acceptable more difficult in economics than say, in chemistry?
A chemist can isolate all other factors that influence things, other variables, economists can’t do that because they test in the real world, and they can’t easily control all the other variables that might influence human behaviour. They can’t have controlled experimentation.
What is a ceteris paribus assumption?
“ceteris paribus” (holding everything else constant). In trying to assess the effect of one variable on another, we must isolate their relationship from other events that might influence the situation that the theory tries to explain or predict.
What is true about causation and correlation?
Causation (one event causes another event to occur) does not equal correlation (two events that usually happen together)
What is aggregation
summing up all parts
what is the fallacy of composition
even if something is true for the for an individual, does not mean its true for the group.
eg. if you stand higher for a concert it may be true itll help you see better, but if everyone did it it would not help.
what is positive analysis
an objective, value-free approach, using the scientific method.
describing and understanding how things actually are, without making judgments about whether theyre good or bad.
What is normative analysis
When the scientist conducting the study has a subjective, biased approach. Normative statements involve judgements about what should or what ought to happen.
Whats the difference between positive and normative statements
“everyone should have universal healthcare” is a normative statement”
“universal healthcare would lead to greater worker productivity” is a testable positive statement
*when economists start talking about the economy should work vs how it does work, they have entered the normative world of the policymaker.
